5-1 Chapter 5: The Challenges of Starting a Business Exploring Business 2.0 © 2012 Flat World Knowledge

5-2 Chapter Objectives 1.Define entrepreneur. 2.Describe the three characteristics of entrepreneurial activity. 3.Identify five potential advantages to starting your own business. 4.Explain the differences among three types of start-up firms. 5.Define a small business. 6.Explain the importance of small businesses to the U.S. economy. Exploring Business 2.0 © 2012 Flat World Knowledge

5-3 Chapter Objectives 7.Explain why small businesses tend to foster innovation more effectively than large ones. 8.Describe some of the ways in which small companies work with big ones 9.Describe the goods-producing and service-producing sectors of an economy. 10.Identify the industries in which small businesses are concentrated. 11.Summarize the advantages and disadvantages of business ownership. 12.Explain what it takes to start a business. Exploring Business 2.0 © 2012 Flat World Knowledge

5-4 Chapter Objectives 13.Evaluate the advantages and disadvantages of several small business ownership options—starting a business from scratch, buying an existing business, and obtaining a franchise. 14.Discuss the importance of planning for your business, and identify the key sections of a business plan. 15.Discuss ways to succeed in managing a business, and explain why some businesses fail. 16.Identify sources of small business assistance from the Small Business Administration. Exploring Business 2.0 © 2012 Flat World Knowledge

5-5 Entrepreneur “…someone who identifies a business opportunity and assumes the risk of creating and running a business to take advantage of it.” Exploring Business 2.0 © 2012 Flat World Knowledge

5-6 Why Be An Entrepreneur? Be Own Boss Be Own Boss Financial Independence Financial Independence Creative Freedom Creative Freedom Use Own Skills & Knowledge Use Own Skills & Knowledge Exploring Business 2.0 © 2012 Flat World Knowledge

Exploring Business © 2009 FlatWorld Knowledge 5-7 Entrepreneurs Vs. Lifestyle Business Owners Entrepreneurs Innovators Innovators New/Improved Products New/Improved Products Grow & Expand Grow & Expand Owners of Lifestyle Businesses Provide Income Provide Income Not Innovative Not Innovative No Plan For Expansion No Plan For Expansion Exploring Business 2.0 © 2012 Flat World Knowledge

5-8 Small Business SBA Classification  Independent Ownership  Little Influence In Industry  Fewer Than 500 Employees Economic Impact  25M+ Businesses  50% of GDP Exploring Business 2.0 © 2012 Flat World Knowledge

5-9 Small Business Importance  Job Creation  Innovative  Opportunities For Women & Minorities  Helps Big Business Exploring Business 2.0 © 2012 Flat World Knowledge

5-10 Small Firm Job Gains and Losses, 1993–2008 (in millions of jobs) Exploring Business 2.0 © 2012 Flat World Knowledge

5-11 Businesses Owned by Women and Minorities Exploring Business 2.0 © 2012 Flat World Knowledge

5-12 Small Business Industries 80% = Intangible Services 80% = Intangible Services 20% = Tangible Goods 20% = Tangible Goods Exploring Business 2.0 © 2012 Flat World Knowledge

5-13 Small Business By Industry Exploring Business 2.0 © 2012 Flat World Knowledge

5-14 Small Business Ownership AdvantagesAdvantages  Independence  Financial Rewards  Lifestyle  Learning Opps.  Creative Freedom  Personal Satisfaction  Disadvantages  Financial Risk  Stress  Time Commitment  Undesirable Duties Exploring Business 2.0 © 2012 Flat World Knowledge

5-15 Entrepreneur’s Work Week Exploring Business 2.0 © 2012 Flat World Knowledge

5-16 Business Plan “…a document that identifies the goals of your proposed company and explains how they will be achieved...” Exploring Business 2.0 © 2012 Flat World Knowledge

5-17 Blueprint for Company How Business Will be BuiltHow Business Will be Built How Intend To Make It SturdyHow Intend To Make It Sturdy Get FinancingGet Financing Exploring Business 2.0 © 2012 Flat World Knowledge

5-18 Sources For Business Idea IndustryExperienceHobbies Exploring Business 2.0 © 2012 Flat World Knowledge

5-19 Ownership Options  Start From Scratch  Buy Existing  Buy A Franchise Exploring Business 2.0 © 2012 Flat World Knowledge

5-20 The Growth of Franchising, 1980–2007 Exploring Business 2.0 © 2012 Flat World Knowledge

5-21 Franchise FranchiseAdvantages  Recognized Name Product Product  Help In Start-up  Advertising  Ongoing Support Disadvantages  Expensive Franchise FeeFranchise Fee Royalty FeeRoyalty Fee  Franchiser’s Rules  Franchiser May Not Follow Through Through Exploring Business 2.0 © 2012 Flat World Knowledge

5-22 Benefits Of Business Plan  Forces You To Think Critically Critically  Reduces Risk  Analyze Concept/ Industry Industry Exploring Business 2.0 © 2012 Flat World Knowledge

5-23 Audiences of Plan  Investors Quality of Concept Quality of Concept Ability to Manage Ability to Manage  Bankers- Ability To Repay Loan Exploring Business 2.0 © 2012 Flat World Knowledge

5-24 Business Plan 1)Executive Summary 2)Description of Business 3)Industry Analysis 4)Mission Statement/Core Values 5)Management Plan 6)Goods/Services 7)Development & Production 8)Marketing 9)Global Issues 10)Financial Plan 11)Appendices Exploring Business 2.0 © 2012 Flat World Knowledge

5-25 Executive Summary  1-3 Page Overview  Most Important Part  Written After Plan Completed Exploring Business 2.0 © 2012 Flat World Knowledge

5-26 Description Of Business  What Will Do?  Goods/Services Provided?  Unique?  Customers?  How Sold?  Location? Exploring Business 2.0 © 2012 Flat World Knowledge

5-27 Industry Analysis  Players?  Outlook?  Total Projected Sales?  Factors of Expansion/Contraction?  Future Economic Conditions? Exploring Business 2.0 © 2012 Flat World Knowledge

5-28 Mission Statement & Core Values  Mission Statement- Purpose or mission of company  Core Values- Fundamental beliefs...what is/is not appropriate in business activities, ideals Exploring Business 2.0 © 2012 Flat World Knowledge

5-29 Management Plan o Member Qualifications Education Education Experience Experience Expertise Expertise o Legal Form Sole Proprietorship Sole Proprietorship Partnership Partnership Corporation Corporation Exploring Business 2.0 © 2012 Flat World Knowledge

5-30 Goods & Services  Description  Better Than Competitors  Market Needs  Competitive Advantage Exploring Business 2.0 © 2012 Flat World Knowledge

5-31 Development & Production  Product Design  Technology  Own Or Contract For Facilities  Where?  Equipment  Design/Layout Of Facilities  Number of Employees  Units Produced  Ensure High Quality? Exploring Business 2.0 © 2012 Flat World Knowledge

5-32Marketing  Target Market  Pricing  Distribution  Promotion Exploring Business 2.0 © 2012 Flat World Knowledge

5-33 Global Issues  Buying/Selling In Other Countries  Identify Cross Border Challenges  How Overcome Challenges  Strategies For Future Exploring Business 2.0 © 2012 Flat World Knowledge

5-34 Financial Plan  Cash Needs Start-up Start-up Operations Operations Funding Sources Funding Sources  Repay Debt  Projections Expected Sales Expected Sales Costs Costs Profits (Losses) Profits (Losses) Exploring Business 2.0 © 2012 Flat World Knowledge

5-35Appendices  Resumes  Financial Statements Exploring Business 2.0 © 2012 Flat World Knowledge

5-36 Succeeding In Business  Know Business  Know Management  Proper Attitude  Get Adequate Funding  Manage Money  Manage Time  Know People  Satisfy Customer  Know How To Compete Exploring Business 2.0 © 2012 Flat World Knowledge

5-37 SBA Assistance Assistance In: Assistance In: – Business Plan – Starting – Managing Financing Financing Management/Technical Management/Technical Services/Training Services/Training Exploring Business 2.0 © 2012 Flat World Knowledge

5-38 SBA Programs  SBDCs Assist with  Business Problems  Free Training & Technical Info.  Service Corps of Retired Executives Exploring Business 2.0 © 2012 Flat World Knowledge

5-39 Why Businesses Fail  Bad Business Idea  Cash Problems  Inexperience or Incompetence  Lack Of Customer Focus  Inability To Handle Growth Exploring Business 2.0 © 2012 Flat World Knowledge